Back to Prime Numbers

Don’t stress about short-term reactions to an M&A announcement

Vartika Gupta

Engages in research and discussions on capital market diagnostics, financial modeling, M&A, valuation, and cost of capital

David Kohn

Leverages his deep understanding of corporate finance and valuation to provide an investor perspective and help clients identify value-creating strategies

Combines broad cross-sector experience with decades of service to clients in value creation, corporate strategy, capital-markets issues, and M&A transactions

Works at the intersection of strategy and finance with high tech, industrial, and pharmaceutical clients to identify and prioritize corporate strategies for restructuring, performance improvement, and growth

When a company announces a merger or acquisition, executives hold their breath and hope for a favorable reaction from the market. In general, the market tends to be pessimistic about such deals. So a positive reaction must mean that the deal team struck the right terms, told the right story to investors, and has the right strategies in place to appease regulators and create value from the deal long term—right? Maybe not.

Our research shows that the market’s immediate reaction to M&A announcements isn’t correlated with long-term value creation. In fact, of the large M&A deals1 we studied, just under half of the announcements that got a negative reaction from the market initially went on to earn positive TSR two years later. By contrast, 40 percent of the announcements that got a positive reaction initially had negative TSR two years later (exhibit).

The market’s initial reactions to deal announcements can be an unreliable of the potential long-term value.
We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Please email us at:

Rather than hold out for the hosannas, executives should take the market’s reaction for what it is—a reflection of investors’ current best understanding of the deal given the information they have in the moment. If the market doesn’t respond enthusiastically, there are steps that executives can take to counter the skepticism. They could increase communications with investors, for instance, and be more transparent about their integration plans and performance objectives. Whatever the initial reaction to a merger or acquisition, executives should remember that there are always opportunities to validate or change the narrative on a large deal so that their messages about value creation come across more clearly.

1. “Large M&A deals” defined as M&A deals worth 30 percent or more of the acquirer’s market capitalization.

Vartika Gupta is a solution manager in McKinsey’s New York office, where David Kohn is an associate partner; Tim Koller is a partner in the Denver office; and Werner Rehm is a partner in the New Jersey office.

For a full discussion of market dynamics, see Valuation: Measuring and Managing the Value of Companies, seventh edition (John Wiley & Sons, 2020), by Marc Goedhart, Tim Koller, and David Wessels.